Gold prices tanking?

NM_Shooter · October 26, 2008, 06:22:34 PM

Gold is dropping in price? What the heck is up with that? I thought that gold prices ran contrary to the stock market?

I'm thinking of buying some Maple Leaves.

-f-

ScottA · October 26, 2008, 06:36:48 PM

That's because comex gold is'nt really gold it's paper like our funny money. Try buying real gold and see how much it's down.

October 26, 2008, 06:44:23 PM

Yup - real gold should still be good no matter what. The big guys will try to work deals to mess up the pricing but when they have it all see what happens.

muldoon mentioned that some of it was being sold to get liquidity to cover other debts in the messed up market. I think in the end gold will always come out a winner as there is only so much real gold and the ones carrying paper will have something nice to wipe with when they try to cash it in - if it goes like the rest of the market lately.

muldoon · October 26, 2008, 09:44:26 PM

yup, gold is down. so is oil, wheat, corn, copper, and nearly every commodity. In fact, most commodoties have been cut in half since June - lost 50%.

If you go and search for deflation on the forum, you'll find me ranting for months on this. So if we look at money as an item that can purchase goods and services we can conclude that money can include cash, but also can include credit. If you consider how banks mark liabilities as money good you could also make the case that debt itself is credit. As credit has constricted, and debt has been written off the velocity of money has slowed to a crawl. This means that not as many dollars are in the system for purchasing. The dollars that are still in are in demand because they are needed to pay debts that were denominated in us dollars. Simply put, as the economy slows fewer dollars are available to grow. With growing slowing people must sell assets to meet other obligations. This isn't a choice, it occurs as a margin call from brokers and occurs without the asset holder having much choice in it.

Scotta is damn spot on when he says that comex paper gold is deveating from physical gold. There is a distinction, and paper gold (a promise to pay from a vault) is being sold which drives the spot price downward. There is concern that this paper gold may NOT be as safe and backed by physical as previous thought. (thought by others in the financial sector that is, I have no doubt its fraudulent).

That being said, there is not shortage of 400oz bars. What the shortage is is the retail gold market. So, you cannot buy a 1oz coin like a Maple or Kruggerand right now but you could buy large commercial quantity. Many Many are hoarding the smaller denominations and not selling which is causing dislocation between paper price, large denomination physical price and small retail denomination price.

I have said in the past I didnt think gold was a good play. And my reasonaing and logic for that was based on the deflationary environment. I still hold to that thesis for the most part. However I want to put forward a few conditions that physical gold does indeed make sense.

-Currency collapse. when a currency collapses in value, gold will retain value. Earlier in the year gold rose quickly in value. If you also look at the US dollar, you'll see it was losing value at the same time. As the dollar devalued gold increased in value as dollars. Essentially you could say that gold stayed flat - as did oil, but that our dollars were worth less. For the last few months the dollar has gained in strength and gold/oil has given back much of those gains.

(repaired chart-gk)

Our currency is NOT in collapse right now, it is massivly strenghting and has since the reversal of oil. This is due to other nations (euro, china, russia latin america) losing ground while we are holding our ground. If the situation were to reverse and the dollar were to plummet gold would be a good holding. If we were to head to a worse case scenario where the dollar were to crumble to nothing and a new currency would be developed - then gold would be a great transitional tool to carry wealth from one currency to another as it would be revalued in the new currency.

2) The second reason to play gold is fear of hyper-inflation. Currently we are in delfation, however the games being played by the federal reserve and treasury are in fact very scary and inflationary. It is possible that these hundreds of billions/trillions in bailout money could come back to really really hurt us in 18-24 months and cause prices to skyrocket across the board. Gold would be a wealth preservation maechanism that could help offset losses in this scenario.

So, thats my thoughts on where were at with gold. Disclosure - I have no gold other than my wedding ring.

Squirl · October 26, 2008, 10:20:30 PM

I do own some gold and silver maple leafs. Check the prices between ebay and nymex.com. Nymex has silver at 9 and gold at 7.30. Ebay has them at 15 and 850 on average.

October 27, 2008, 12:13:23 AM

squirl, I hear you on that. The divergence looks juicy. If someone had balls of steel they could buy futures, then in 3 months request delivery instead of rolling paper and sell for big profit. Will the current condition hold for the time duration tho? If so, that's great arbitrage. But the fact remains, while comex paper is selling cheaper they do NOT have any delivery fails. As long as they deliver the commodity against futures contracts you cant call too much distortion. If you think the dislocation holds go long futes and demand delivery. I think were looking at a correction soon. The commercial paper game looks even worse than last week, treasury is showing extreme pressure. Something is about to give, gonna leave a mark when it happens. Maybe as soon as the next 2-5 days. I expect fireworks this week.

While I agree the current situation is not healthy, I'm just not up for the manipulation discussion until we see exchange futures delivery fails. As long as they deliver it at agreed price you cant call it broken, maybe wrong, but not broken.

apaknad · October 27, 2008, 08:43:25 AM

gold mostly reacts to chaos and the financial problems have already been figured into the price. so now that the dollar is getting stronger and the world hasn't ended yet, gold is starting to cool down. if you are thinking about buying it would be a good time to move in on this down trend. don't know where the bottom is. that's just a guessing game. gold is a safe gaurd as opposed to an investment. look at silver too. it moves on inflation mostly and somewhat on what gold is doing.

dan

Squirl · October 27, 2008, 09:41:47 AM

If I had the cash lying around I would take delivery. At 100 troy ounces per contract and 723 and ounce for October gold. That would be $72,300 in cash per contract. What is amazing is the negative cost of carry.

NM_Shooter · October 27, 2008, 12:38:42 PM

Is the 100 oz in one bar?

I read that if you take delivery and want to sell it later, it has to be assayed (sp?)

I thought about trying to find a few folks who might want to put together a group to buy the gold and divvy it up.

October 27, 2008, 07:39:37 PM

if you want to liquidate gold there is a good chance that a person will want it assayed to confirm purity or authenticity. that's why i like junk silver.

NM_Shooter · October 27, 2008, 10:40:39 PM

Junk silver is not a bad way to go.

Very low risk in the small coins. Only problem is that it takes a bunch to be worth much.

Where do you purchase yours from? Do you buy it only by weight?

muldoon · October 28, 2008, 04:09:41 AM

All good points above. I also have some junk silver, a few hundred dollars in face value of mercury dimes. I picked it up from apmex when they had it available, about 12 months ago. I dont know what comes next but I figure the coins would make neat passdown gifts to my kids if nothing else.

So, I'll be honest about something here. The person who buys silver is likely looking to make a profit and the person who buys gold is likely looking to preserve wealth. It has been that way for decades based on what I have seen. I still am trying to really figure out what the best medium plan is, and to date I dont have an answer. I do watch the situation daily and adjust my thinking as conditions change. For now I still dont think precious metals is the answer to wealth preservation given all the information today. I could be wrong, if you think so, please enlighten me why...

peternap · October 28, 2008, 06:36:07 AM

Going back a number of years, I started buying gold and silver. I found out quickly that it was hard to get and have any profit.

I was lucky in the beginning. I was able to find some estate collections and buy them privately. We bought several hundred one ounce silver bars, 100 morgan/peace dollars and several pounds of silver reclaimed from film development.

Then I then I found a source for silver Maple leaf's at spot silver price. I didn't ask too many questions about that one.

All that dried up so I started buying Krugerrand's.

Through all this I was paying spot prices for everything including the coins.

Then I started looking at the flea markets and buying every piece of gold jewlery that was marked. The profit is WAY up on them and has been from day 1.

This year, I bought gold settings at last years prices from the Jewelry channel, when they did their close outs.

The deals are still out there , you just have to look.

apaknad · October 28, 2008, 07:41:03 AM

as peternap said, you just have to look around for bargains. people are hurting right now so it may be easier to find them. diversification is the only good reason to buy muldoon. other than that i don't have a clue anymore than anyone else. as far as bulk goes, it is alot easier to trade dimes than kruggerands or bullion. i live on a pension so my purchases are few but there's a feeling in the air that it is certainly part of your strategy if you can do it. as i have said before, don't buy P.M.'s to make a profit. buy them for peace of mind. if you do sell and make a profit that is icing on the cake.

October 28, 2008, 09:22:43 AM

Okay... I am going to hijack my own thread.

I was considering gold as an investment vehicle now, since the price has been pushed down. I'm thinking about an ETF, but the idea of holding the gold also appeals to me as a safety net. Only problem with that is that it is very expensive in low volume. I don't have the expertise of being able to determine if gold jewelry is good or junk at flea markets though. Peter, how do you do that?

The junk silver seems like it would be decent for currency if a problem occurs, but I also suspect that a lot of things are going to be good currency... ammunition, tobacco, antibiotics. Maybe silver has a bit higher value-per-object density. I dunno.

I suspect that under an Obama administration though, we might see restrictions on firearms and ammunition come into play. How much you can own, store in one place, etc. Not sure having a ton of ammunition is viable as a currency if it is illegal to store in quantity. I buy projectiles, primers and powder from a club here in town and can get 500pcs of 69grn Sierra match kings for $70. I'm thinking of increasing my hoard.

heck... the way lead shot doubled in price in two years time, maybe I should be investing in lead shot

peternap · October 28, 2008, 09:40:02 AM

Quote from: NM_Shooter on October 28, 2008, 09:22:43 AM
Okay... I am going to hijack my own thread.

I was considering gold as an investment vehicle now, since the price has been pushed down. I'm thinking about an ETF, but the idea of holding the gold also appeals to me as a safety net. Only problem with that is that it is very expensive in low volume. I don't have the expertise of being able to determine if gold jewelry is good or junk at flea markets though. Peter, how do you do that?

The junk silver seems like it would be decent for currency if a problem occurs, but I also suspect that a lot of things are going to be good currency... ammunition, tobacco, antibiotics. Maybe silver has a bit higher value-per-object density. I dunno.

I suspect that under an Obama administration though, we might see restrictions on firearms and ammunition come into play. How much you can own, store in one place, etc. Not sure having a ton of ammunition is viable as a currency if it is illegal to store in quantity. I buy projectiles, primers and powder from a club here in town and can get 500pcs of 69grn Sierra match kings for $70. I'm thinking of increasing my hoard.

heck... the way lead shot doubled in price in two years time, maybe I should be investing in lead shot

The gold is easy. Get a jewelers loupe. If the jewelry is gold, it will be marked somewhere. Most is 14K, some 18 and almost never 24.

I buy a lot of lead cast bullets. If you watch the tables at gunshows, you can pick up great deals on boxes of 500 cast 9mm bullets. No one shoots cast 9mm cast so they go cheap.
First, you can recast them to whatever,
Second, you can size them down to .38/.357
Third, you can melt them and make swan shot.
Fourth, you can trade them to someone that wants to swage jackets on them.

Also, get all the wheelweights you can.

I wouldn't buy any gold yet unless you can get it at $600 an ounce or less. We are a long way from the bottom and once it bottoms, it will be a long time coming back.
Forget ebay. That's for wannabees. Think of it this way, A survivalist wannabee will buy Ginseng on Ebay but a serious survivalist will go out ande dig his own.

Whitlock · November 13, 2008, 12:55:59 PM

Gold is down to $700.00

glenn kangiser · November 13, 2008, 01:21:36 PM

temporarily...

apaknad · November 14, 2008, 09:31:34 AM

the one thing to watch out for in gold/silver is hyper inflation. now we all know that the stage is set for inflation, it is just a matter of time. is it set for hyper inflation? i think it is but when will it kick in is the question? so in my mind and strategies i don't want to bet on a time scenerio but just be purchasing a little gold or silver here and there. like i said before, i live on a pension and cannot afford to make large purchases. ammo, reloading supplies, anti-biotics we all know that these things and more are always a good purchase for the future. just one other silly point about junk silver. it can still be used in coin operated machines.
i do enjoy hearing opinions from our members who all seem to have good touch points on the subjects that are posted here. keep up the good work everyone. it's like having a library of expertise af our keyboards.

muldoon · November 14, 2008, 10:46:11 AM

I think the deflation story gets attention here enough. But looking forward who knows which way it goes.

Here is something I read yesterday that just paints more devaluation, globally.

http://www.theglobeandmail.com/servlet/story/LAC.20081113.RCHINA13/TPStory/Business

global. thats the real key here for me. If I go back and look at every case of financial crashes there is a clear pattern. Some entity or country is in trouble, begins making bad decisions in an attempt to get out of the hole and eventually digs much further in. The rest of the world isolates from that country and they crash. The key is that some catalyst acted and the destroyed country was forced down by the rest of the world. There economic pecking order relative to others fell resulting in their downfall. Here we have a global crisis; and that's the bit I cant figure out. If Europe or China was healthy and we started to print our way out of it they would shun the dollars and crucify us. But they are not, fact be they may be in truly worse shape than us. So what happens if the entire planet chases these "bad ideas" of printing, devaluing currency, and hiding bad debt? Is it just a wash? Does every currency crash simultaneously? That doesn't really work because to crash it has to devalue versus something else. If dollars are worth less and the pound is worth less and the yaun and the mark and the euro, are any of them? Did the relationship really change that much? I dont have an answer, I spend alot of time thinking about this question though. Depending on the answer to this, lies the answer to inflation, depression, hyperinflation, muddle through, and what comes next.

As for yesterday, Roubini has a good an answer as anyone. Lots of emotional trading going on out there. fear & greed driving this market.

November 14, 2008, 11:05:49 AM

Maybe the answer has something to do with the real world bankers and controllers of the purse strings being above all governments. Bilderbergers, CFR etc.

The rest of the economies are so interdependent on the US economy they need the worthless paper also and their division of the world bankers will also buy out the failed banks and businesses for pennies on the dollar.

harry51 · November 14, 2008, 11:49:55 AM

One of the games the various central banks play with the currencies is competitive devaluation. The idea is to make the products made in your country more attractive to buyers in other countries because of the exchange rate between their currency and yours, yours being manipulated to be relatively weaker. We see this locally in the form of droves of foreign tourists when the dollar gets relatively weaker to other currencies. Sometimes the tourists are european, other times oriental. They come through by the busload!

A book that may be of interest is The Case For Gold by Ron Paul and Lewis Lherman (sic)